Minneapolis Public Schools Special District No. 1 Minneapolis, Minnesota. Financial Statements. June 30, 2016

Transcription

1 Minneapolis, Minnesota Financial Statements June 30, 2016

2 Table of Contents Board of Education and Administration 1 Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 20 Statement of Activities 21 Fund Financial Statements Balance Sheet Governmental Funds 22 Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Funds 23 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds 24 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Governmental Funds 25 Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund 26 Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Food Service Special Revenue Fund 27 Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Community Service Special Revenue Fund 28 Statement of Net Position Proprietary Funds 29 Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds 30 Statement of Cash Flows Proprietary Funds 31 Statement of Fiduciary Net Position 32 Statement of Changes in Fiduciary Net Position 32 Notes to Financial Statements 33 Required Supplementary Information Schedule of Funding Progress Other Post Employment Benefits 74 Schedule of Employer Contributions Other Post Employment Benefits 74 Schedule of District's Proportionate Share of Net Pension Liability GERF Retirement Fund 75 Schedule of District's and Non-Employer Proportionate Share of Net Pension Liability TRA Retirement Fund 75 Schedule of District Contributions GERF Retirement Fund 76 Schedule of District Contributions TRA Retirement Fund 76 Notes to Required Supplementary Information 77 Supplementary Information Uniform Financial Accounting and Reporting Standards Compliance Table 80

3 Board of Education and Administration Year Ended June 30, 2016 Board of Education Position Term Expires Jenny Arneson Chair 2019 Kim Ellison Vice Chair 2017 Josh Reimnitz Clerk 2017 Rebecca Gagnon Treasurer 2019 Carla Bates Director 2017 Tracine Asberry Director 2017 Nelson Inz Director 2019 Siad Ali Director 2019 Don Samuels Director 2019 Shaadia Munye Student Representative 2017 Administration Ed Graff Ibrahima Diop Tariro Chapinduka Superintendent Chief Financial Officer Director - Financial Systems District Offices: Special School District No. 1 Minneapolis Public Schools 1250 West Broadway Avenue Minneapolis, MN (612)

4 Independent Auditor's Report To the School Board Minneapolis Public Schools Minneapolis, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Minneapolis Public Schools,, Minneapolis, Minnesota, as of and for the year ended June 30, 2016, and the related notes to financial statements, which collectively comprise the District's basic financial statements as listed in the Table of Contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the basic financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2

5 Opinions In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of Minneapolis Public Schools, Special District No. 1, Minneapolis, Minnesota, as of June 30, 2016 and the respective changes in financial position thereof, and the budgetary comparison for the General Fund, the Food Service Special Revenue Fund and the Community Service Special Revenue Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, which follows this report letter, and the Required Supplementary Information as listed in the Table of Contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by GASB, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary Information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic financial statements. The accompanying supplementary information identified in the Table of Contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying supplementary information identified in the Table of Contents is the responsibility of management and was derived from and relates directly to, the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

6 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 29, 2016, on our consideration of the District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. Minneapolis, Minnesota December 29,

7 Management's Discussion and Analysis This section of the District's annual financial report presents a discussion and analysis of the District's financial performance during fiscal year ended June 30, Please read it in conjunction with the financial statements that immediately follow this section. The MD&A is an element of required supplementary information specified in the GASB Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, issued in June Certain comparative information between the current year ( ) and the prior year ( ) is required to be presented in the MD&A. FINANCIAL HIGHLIGHTS Total combined fund balance of all the District's governmental funds decreased $25.6 million, from the prior year. This net decrease was due primarily to excess capital outlay expenditures for building constructions over proceeds from bond issuances. Total governmental fund revenues were $710 million, up $15.6 million or 2.3% increase over the prior year. While the most significant increase of $11.7 million or 2.8% over last year came from revenue from state sources primarily due to increase in enrollment and increase in the formula allowance for fiscal year Property taxes also increased by $8.5 million or 5.0% primarily due to increase in levy. Total governmental fund expenditures were $878 million, up $78.5 million, or 9.8% from the prior year. Capital outlay increased by 34.7% or $29.2 million. Current expenditures also increased in Instructional Support, ($8.2 million or 18.0%), Pupil Support ($1.6 million or 2.5%), Administration ($1.6 million or 10.1%), Elementary and Secondary Instruction ($20.2 million or 7.7%), Special Education ($5.5 million or 4.8%), Vocational Instruction ($0.1 million or 2.1%), Site, Buildings, and Equipment ($2.2 million or 3.3%), Community Service ($1.7 million or 7.1%) and Food Service ($2.6 million or 14.0%) compared to last year. District Support Services decreased by $9.4 million or 33.3%. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the annual report consists of four parts: Independent Auditor's Report, required supplementary information, including the MD&A, the basic financial statements, and supplementary information. The basic financial statements include two kinds of statements that present different views of the District: The first two statements are government-wide financial statements that provide both short-term and long-term information about the District's overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District's operations in more detail than the government-wide statements. The governmental funds statements tell how basic services such as regular and special education were financed in the short term as well as what remains for future spending. Proprietary funds statements offer short-term and long-term financial information about the District's self-insured risk management activities. 5

8 Management's Discussion and Analysis OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) Fiduciary funds statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others to whom the resources belong. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. Government-Wide Statements The government-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the District's assets and liabilities. All of the current year's revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the District's net position and how they have changed. Net position the difference between the District's assets and liabilities is one way to measure the District's financial health or position. Over time, increases or decreases in the District's net position are an indicator of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the District you need to consider additional non-financial factors such as changes in the District's property tax base and the condition of school buildings and other facilities. In the government-wide financial statements the District's activities are shown in one category: Governmental Activities Most of the District's basic services are included here, such as regular and special education, transportation, administration, food services, and community education. Property taxes and state aids finance most of these activities. Fund Financial Statements The fund financial statements provide more detailed information about the District's funds focusing on its most significant or "major" funds not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs: Some funds are required by State law and by bond covenants. The District may establish other funds to control and manage money for particular purposes (e.g., repaying its long-term debts) or to show that it is properly using certain revenues (e.g., federal grants). 6

9 Management's Discussion and Analysis OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) The District has three kinds of funds: Governmental Funds Most of the District's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps to determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information (reconciliation schedules) immediately following the governmental funds statements that explain the relationship (or differences) between these two types of financial statement presentations. Proprietary Fund - Internal Service Fund Used to report activities that provide supplies and services for the District's other programs and activities. The District currently has one internal service fund for self-insurance of worker's compensation, property and liability, as well as accumulating and recording the liability for accrued compensated absences (severance and vacation) and health insurance benefits for eligible employees upon retirement. Fiduciary Fund The District is the trustee, or fiduciary, for assets that belong to others, such as assets held in trust for post-employment benefits. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes, and by those to whom the assets belong. All of the District's fiduciary activities are reported in a separate statement of fiduciary net position and a statement of changes in fiduciary net position. We exclude these activities from the government-wide financial statements because the District cannot use these assets to finance its operations. 7

10 Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Net Position The District's combined net position was negative $369 million on June 30, This was a change of 8.24% from the prior year (see Table A-1). Table A-1 The District's Net Position Primary Government Governmental Activities Percentage Change Current and other assets $ 523,255,668 $ 585,947, % Capital assets 640,670, ,293, % Total assets 1,163,925,954 1,136,241, % Deferred outflows of resources 193,147,077 91,565, % Total assets and deferred outflows of resources 1,357,073,031 1,227,806, % Current liabilities 139,609, ,562, % Long-term liabilities 1,330,276,033 1,075,111, % Total liabilities 1,469,885,889 1,241,673, % Deferred inflows of resources 255,860, ,727, % Net position Net investment in capital assets 163,600, ,432, % Restricted 20,331,931 27,225, % Unrestricted (552,605,238) (526,252,170) 5.01% Total net position $ (368,672,876) $ (340,594,018) 8.24% The District's financial position is the product of many factors. For example, the determination of the District's net investment in capital assets involves many assumptions and estimates, such as current and accumulated depreciation amounts. Total net position decreased by approximately $28 million, due to increase in expenditures primarily from increase in Elementary and secondary regular instruction which is a result of class size reduction and Special Education instruction of approximately $43 million. As presented in the table above, net investment in capital assets experienced an increase of $5.2 million over the prior year, while restricted net position decreased by $6.9 million and unrestricted net position decreased by approximately $26.4 million. The District's decrease in current and other assets is due to decrease in cash and investments as a result of capital outlays for building construction. The District's increase in total liabilities is due to salaries, and compensated absences payable, bonds payable and net pension liability. 8

11 Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (CONTINUED) Changes in Net Position The District's government-wide total revenues were approximately $712 million for the year ended June 30, Property taxes and unrestricted state aid accounted for 72.5% of total revenue for the year. An additional 1.6% came from other general revenues, and the remaining 25.9% from program revenues (Table A-2). Table A-2 Change in Net Position Primary Government Governmental Activities for the Fiscal Year Ended June 30, Percentage Revenues Change Program revenues Charges for services $ 17,626,598 $ 16,449, % Operating grants and contributions 147,312, ,133, % Capital grants and contributions 11,000,000 11,000, % Genral revenues: Property taxes 178,793, ,817, % State formula aid 336,888, ,642, % Other 19,901,219 13,825, % Total revenues 711,522, ,868, % Expenses District and school administration $18,298,352 14,463, % District support services 26,864,475 30,330, % Regular instruction 304,864, ,074, % Vocational instruction 4,191,742 3,989, % Special education instruction 128,294, ,253, % Instructional support services 56,903,247 46,257, % Pupil support services 70,333,762 63,653, % Sites, buildings, and equipment 61,837,606 65,034, % Fiscal and other fixed cost programs 585, , % Food service 22,736,775 19,370, % Community education and services 28,205,073 24,319, % Interest and fiscal charges on long-term debt 16,485,498 15,789, % Total expenses 739,601, ,103, % Change in net position (28,078,858) 14,764, % Net position - beginning, as previously stated (340,594,018) 266,658,454 Change in accounting principle - (622,017,465) Net position - beginning, as restated (340,594,018) (355,359,011) -4.15% Net position - ending $ (368,672,876) $ (340,594,018) 8.24% 9

12 Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (CONTINUED) Total cost of all programs and services was $740 million in fiscal District expenses were primarily related to educating and caring for students (77%). The District's Community and Nutritional Service programs accounted for 7% of expenses while facility maintenance totaled 8% and fiscal/other fixed cost expenses totaled 2%. District and school administration and District Support Services accounted for 6% of total expenses during fiscal (see Figure A-2 on next page). The cost of all governmental activities this year was $740 million. Some of the cost was paid by the users of the District's programs (Table A-2 previous page, Charges for Services, $17.6 million). The federal and state governments subsidized certain programs with grants and contributions (Table A-2, Operating and Capital Grants and Contributions, $158 million). Most of the District's costs were paid for with local property taxes of $179 million, unrestricted state aid of $337 million, and other general revenues of $19.9 million. Figure A-1 Sources of Revenue Fiscal Year % 2% 21% 47% 2% 25% Charges for Services Capital Grants and Contributions State Formula Aid Operating Grants and Contributions Property Taxes Other 10

13 Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (CONTINUED) Figure A-2 Expenses Fiscal Year % 2% 2% 4% 8% 3% 10% 41% 8% 17% District and School Administration Regular Instruction Special Education Instruction Pupil Support Services Food Service Interest and Fiscal Charges on Long-Term Debt 1% District Support Services Vocational Instruction Instructional Support Services Sites, Buildings, and Equipment Community Education and Services Governmental funds include not only funds received for the general operation of the District but also include resources from the entrepreneurial-type funds of Food Service and Community Education, and from resources for fiscal service transactions. Funding for the general operation of the District is controlled by the state and the District does not have the latitude to allocate money received in Food Service or Community Education or for fiscal services to enhance general operation resources, (Figure A-2) shown on the previous page, therefore, the District does not include Special Revenue Funds (Food & Community Services) as a component of the general operation of the District, since the District cannot take funds from these restricted areas and use the funds to enhance instruction-related programs. 11

14 Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (CONTINUED) Table A-3 Primary Government Cost and Net Cost of Services Total Cost of Services Percentage Net Cost of Services Percentage Change Change Administration $ 18,298,352 $ 14,463, % $16,032,722 $ 13,942, % District support services 26,864,475 30,330, % 26,661,395 28,838, % Elementary and secondary regular instruction 304,864, ,074, % 267,266, ,990, % Vocational education instruction 4,191,742 3,989, % 3,552,958 3,476, % Special education instruction 128,294, ,253, % 52,111,907 39,639, % Instructional support services 56,903,247 46,257, % 53,143,052 44,091, % Pupil support services 70,333,762 63,653, % 66,905,930 60,324, % Sites and buildings 61,837,606 65,034, % 59,012,379 62,001, % Fiscal and other fixed cost programs 585, , % (565,590) 567, % Food service 22,736,775 19,370, % 305,397 (79,259) % Community education and services 28,205,073 24,319, % 4,999,882 2,937, % Interest and fiscal charges On long-term debt/depreciation 16,485,498 15,789, % 5,485,498 4,789, % Total $ 739,601,518 $ 674,103, % $ 554,912,260 $ 508,520, % FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS The financial performance of the District as a whole is reflected in its governmental funds as well. As the District completed the year, its governmental funds reported a combined fund balance of $259 million, or a $25 million decrease over last year. The District's governmental funds reported total expenditures of $878 million and total revenues of $710 million. Based on these results, fund balance would have decreased by $168 million. The District also reported an increase in fund balance of $143 million as a result of new bond issues including bond premiums of $7.6 million and real estate sales during the year. These other sources of financing along with the increase in expenditures over revenues resulted in an overall decrease to the combined fund balance of $25.5 million from the prior year. ENROLLMENT Enrollment is a critical factor in determining revenue. The following chart shows that the number of students has increased over each of the past four years. There was a slight increase in enrollment over the last year of 0.24%. Table A-4 Student Enrollment (Average Daily Membership) Reg K, Pre-K & KH 3,470 3,409 3,469 3,708 3,656 3,728 3,789 3,582 3,682 3,587 Elementary 16,221 15,832 15,939 15,982 16,236 16,725 17,218 17,643 17,964 17,866 Secondary 16,013 14,896 14,256 13,671 13,087 12,878 12,985 13,086 13,740 14,019 Total Students for Aid 35,704 34,137 33,664 33,361 32,979 33,331 33,992 34,311 35,386 35,472 Percentage Change -4.18% -4.39% -1.39% -0.90% -1.15% 1.07% 1.98% 0.94% 3.13% 0.24% 12

15 Management's Discussion and Analysis GENERAL FUND The General Fund includes the primary operations of the District in providing educational services to students from kindergarten through grade 12. Special Education serves students from birth to 21. The General Fund also includes pupil transportation activities and capital outlay projects. 35,000 Figure A-3 Student Enrollment (Average Daily Membership) 30,000 25,000 20,000 15,000 10,000 5, Elementary Secondary 13

16 Management's Discussion and Analysis GENERAL FUND (CONTINUED) The following schedule presents a summary of General Fund Revenue. Table A-5 General Fund Revenues Year Ended June 30, Increase Percentage (Decrease Change Local Sources: Property Taxes $116,602,944 $ 106,397,151 $ 10,205, % Earnings on Investments 454, , , % Other 17,838,028 19,817,519 (1,979,491) -9.99% State Sources 410,256, ,944,459 10,312, % Federal Sources 40,075,526 38,310,414 1,765, % Total $ 585,227,545 $ 564,736,254 $ 20,491, % General Fund revenue increased by $20.5 million or 3.63%, from the previous year. Revenue increased slightly in fiscal year 2016 due to a slight increase in student enrollment, which increased the District's general education aid. Property taxes also increased due to increase in levy. General Fund Revenue is received in three major categories. In summary, the three categories are: 1. State Education Finance Appropriations A. General Education Aid The largest share of the education finance appropriation, general education aid, is intended to provide the basic financial support for the education program and is enrollment driven. B. Categorical Aids Categorical revenue formulas are used to meet costs of that program (i.e., special education) or promote certain types of programs (i.e., career and technical aid). 2. State Paid Property Tax Levies Credits The largest share of the levy is from voter-approved levies: the excess operating referendum, which is also enrollment driven. Property tax credits reduce the amount of property taxes paid. To make up for this reduction, the state pays the difference between what was levied in property taxes and what is actually received in property taxes to school districts and other taxing districts. 3. Federal Sources The largest source of federal funding are those received under the "No Child Left Behind" reform initiative that was passed in January The law is actually the reauthorization of the 1965 Elementary and Secondary Education Act and is the United States Federal Government's largest assistance program for schools. 14

17 Management's Discussion and Analysis GENERAL FUND (CONTINUED) The following schedule presents a summary of General Fund Expenditures. Table A-6 General Fund Expenditures Year Ended June 30, Increase Percentage (Decrease) Change Salaries $ 372,393,141 $356,552,067 $ 15,841, % Employee Benefits 135,232, ,645,434 17,586, % Purchased Services 70,430,404 74,019,688 (3,589,284) -4.85% Supplies and Materials 15,563,198 12,435,934 3,127, % Capital Expenditures 10,348,822 7,613,457 2,735, % Other Expenditures 2,417,144 7,626,570 (5,209,426) % Total $ 606,384,716 $ 575,893,150 $ 30,491, % Total General Fund expenditures increased by $30.5 million or 5.3% from the previous year. General Fund salaries and benefits increased $33.4 million combined for the year. DEBT SERVICE FUND The Debt Service Fund had excess expenditures over revenues of $16 million. The District issued $10.8 million in general obligation refunding bonds in December 2015 at a premium of $1.7 million. OTHER MAJOR FUNDS Revenues exceeded expenditures by about $0.5 million in the Food Service Fund and resulted in an increase to fund balance bringing the total fund balance to $2.1 million. In the Community Service Fund, revenues exceeded expenditures by about $2 million, resulting in an ending fund balance of about $7.4 million. 15

18 Management's Discussion and Analysis CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets By the end of 2016, the District had invested approximately $640 million (net of accumulated depreciation) in a broad range of capital assets, including school buildings, athletic facilities, computer and audio-visual equipment, and administrative offices (see Table A-7). More detailed information about capital assets can be found in Note 4 to the financial statements. Total depreciation expense for the year totaled approximately $32 million. Table A-7 Capital Assets (Net of Depreciation) Percentage Change Land and Construction in Progress $ 181,156,351 $ 116,208, % Other Capital Assets 459,513, ,085, % Total $ 640,670,286 $ 550,293, % GENERAL FUND BUDGETARY HIGHLIGHTS Annual budgets are prepared on a basis consistent with accounting principles generally accepted in the United States of America for the General, Food Service, Community Service, Debt Service, and Capital Projects funds. All annual unencumbered appropriations lapse at fiscal year-end. In accordance with state statute, the Board of Education adopts the various fund budgets by June 30 of the preceding fiscal year. Over the course of the fiscal year, the Board adopts amendments to the budgets for reinstating prior-year unspent school and department budgets, and increases in appropriations for significant unbudgeted costs. FACTORS BEARING ON THE DISTRICT'S FUTURE The general education program is the method by which school districts receive the majority of their financial support. The basic general education formula allowance for Minnesota school districts increased slightly in fiscal year 2016 to $5,948 per pupil. A weakened economy, uncertain political environment, and growing demand on limited resources continue to present challenges in funding education for Minnesota schools. 16

19 Management's Discussion and Analysis FACTORS BEARING ON THE DISTRICT'S FUTURE (CONTINUED) In fiscal year 2015, the District's Board of Directors approved a new strategic plan. The plan is called "Acceleration 2020" and it includes six goals. The new strategic plan is bold, ambitious and seeks to address the disparity gap that exists in Minneapolis Public Schools. The plan also includes ambitious performance targets known as the " Plan". Specifically, this plan calls for the following: 5 percent annual increase in the number of students proficient in reading and math. 8 percent annual increase of students meeting or exceeding standards in reading and math for our lowest performing students. 10 percent annual increase in the four-year graduation rate. These targets have been set to reignite a sense of urgency in the system and ensure that everyone is operating with a growth mindset. As we achieve the performance targets set in the plan, we expect to eliminate the achievement gap by the year REQUEST FOR INFORMATION This financial report is designed to provide citizens, taxpayers, parents, students, investors, and creditors with a general overview of the District's finances, and to demonstrate the District's accountability for the money it receives. Additional details can be requested by mail at the following address: Minneapolis Public Schools Finance Department 1250 West Broadway Avenue Minneapolis, Minnesota Or visit our website at 17

20 (THIS PAGE LEFT BLANK INTENTIONALLY) 18

21 BASIC FINANCIAL STATEMENTS 19

22 Statement of Net Position June 30, 2016 Governmental Activities Assets Cash and investments $ 338,437,718 Cash and investments held by trustee 16,634,559 Receivables Property taxes 96,626,309 Other governments 65,988,717 Other 4,163,826 Prepaid items 118,571 Inventories 1,285,968 Capital assets Land and construction in progress 181,156,351 Other capital asset, net of depreiation 459,513,935 Total assets 1,163,925,954 Deferred Outflows of Resources Deferred charge on refunding 95,247 Deferred outflows related to pensions 193,051,830 Total deferred outflows of resources 193,147,077 Total assets and deferred outflows of resources $ 1,357,073,031 Liabilities Salaries and compensated absences payable $ 37,255,026 Accounts and contracts payable 31,037,084 Accrued interest 9,012,803 Due to other governmental units 1,245,389 Unearned revenue 446,908 Long-term liabilities Portion due within one year 60,612,646 Portion due in more than one year 1,330,276,033 Total liabilities 1,469,885,889 Deferred Inflows of Resources Property taxes levied for subsequent year's expenditures 160,855,227 Deferred inflows related to pensions 95,004,791 Total deferred inflows of resources 255,860,018 Net Position Net investment in capital assets 163,600,431 Restricted for General fund state-mandated reserves 293,573 Debt service 20,441,697 Capital projects - building construction 13,600,336 Unrestricted (566,608,913) Total net position (368,672,876) Total liabilities, deferred inflows of resources, and net position $ 1,357,073,031 See notes to financial statements. 20

23 21 Minneapolis Public Schools Special School District No. 1 Statement of Activities Year Ended June 30, 2016 Charges for Services Program Revenues Operating Grants and Contributions Capital Grants and Contributions Net (Expense) Revenues and Changes in Net Position Total Governmental Activities Functions/Programs Expenses Governmental activities Administration $ 18,298,352 $ - $ 2,265,630 $ - $ (16,032,722) District support services 26,864, ,080 - (26,661,395) Elementary and secondary regular instruction 304,864, ,353 36,835,577 - (267,266,730) Vocational education instruction 4,191, ,784 - (3,552,958) Special education instruction 128,294,358 3,883,481 72,298,970 - (52,111,907) Instructional support services 56,903, ,726 3,587,469 - (53,143,052) Pupil support services 70,333,762 84,230 3,343,602 - (66,905,930) Sites and buildings 61,837,606 2,509, ,000 - (59,012,379) Fiscal and other fixed cost programs 585,971-1,151, ,590 Food service 22,736,775 2,348,480 20,082,898 - (305,397) Community education and services 28,205,073 7,931,383 15,273,808 - (4,999,882) Interest and fiscal charges on long-term debt 16,485, ,000,000 (5,485,498) Total governmental activities $ 739,601,519 $ 17,691,880 $ 155,997,379 $ 11,000,000 (554,912,260) General revenues Taxes Property taxes, levied for general purposes 116,393,510 Property taxes, levied for community service 5,142,659 Property taxes, levied for debt service 57,175,506 Property taxes, levied for capital projects 82,169 State aid not restricted to specific purposes 336,893,500 Earnings on investments 2,843,804 Gain on sale of capital assets 1,678,723 Miscellaneous 6,623,531 Total general revenues 526,833,402 Change in net position (28,078,858) Net position - beginning (340,594,018) Net position - ending $ (368,672,876) See notes to financial statements.

24 Balance Sheet - Governmental Funds June 30, 2016 Major Funds General Food Service Community Service Capital Project- Building Construction Debt Service Total Governmental Funds Assets Cash and investments $ 95,179,498 $ 933,829 $ 8,976,796 $ 161,046,863 $ 42,595,249 $ 308,732,235 Cash and investments held by trustee ,029 16,005,530 16,634,559 Receivables Current property taxes receivable 58,901,594-2,779,590-31,933,125 93,614,309 Delinquent property taxes receivable 1,944,962-85, ,713 3,012,000 Due from other Minnesota school districts 555, ,946 Due from Minnesota Department of Education 45,498,328-1,284,872-1,130,239 47,913,439 Due from Federal Government through Minnesota Department of Education 12,876, , , ,278,077 Due from Federal Government received directly 1,195, ,195,457 Due from other governmental units 2,045, ,045,798 Other receivables 2,816,237 43, , ,426-3,273,941 Prepaid items 51, ,936 Inventory 801, , ,285,968 Total assets $ 221,867,191 $ 2,313,164 $ 13,848,136 $ 161,919,318 $ 92,645,856 $ 492,593,665 Liabilities Salaries and compensated absences payable $ 25,879,719 $ 69,972 $ 347,551 $ 198,793 $ - $ 26,496,035 Payroll deductions and employer contributions payable 10,758, ,758,991 Accounts and contracts payable 8,852, , ,144 20,391,599 4,650 29,753,195 Due to other governmental units 1,244,388 1, ,245,389 Interest payable ,704-41,704 Unearned revenue 346,381 25,056 75, ,908 Total liabilities 47,081, , ,166 20,632,096 4,650 68,742,222 Deferred Inflows of Resources Property taxes levied for subsequent Year's expenditures 92,123,172-5,503,645-63,228, ,855,227 Unavailable revenue - delinquent property taxes 1,944,962-85, ,713 3,012,000 Total deferred inflows of resources 94,068,134-5,588,970-64,210, ,867,227 Fund Balances Nonspendable Prepaid items 51, ,936 Inventory 801, , ,285,968 Restricted for Alternative facility program ,792,178-46,792,178 Graduation standards - gifted and talented 293, ,573 Community education programs - - 4,391, ,391,533 Early childhood and family educations programs - - 1,202, ,202,910 School readiness , ,807 Adult basic education - - 1,297, ,297,774 QSCB/QZAB ,005,523 16,005,523 Building construction ,495,044-94,495,044 Other purposes - 1,631, ,976-12,425,560 14,327,710 Assigned 25,350, ,350,565 Unassigned 54,219, ,219,695 Total fund balances 80,717,365 2,115,546 7,433, ,287,222 28,431, ,984,216 Total liabilities, deferred inflows of resources, and fund balances $ 221,867,191 $ 2,313,164 $ 13,848,136 $ 161,919,318 $ 92,645,856 $ 492,593,665 See notes to financial statements. 22

25 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position June 30, 2016 Total fund balances - governmental funds $ 259,984,216 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in governmental funds. Land 35,446,301 Construction in progress 145,710,050 Buildings and improvements, net of accumulated depreciation 448,596,261 Equipment, net of accumulated depreciation 10,917,674 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Bond principal payable (317,010,000) Unamortized bond premiums and discounts (41,126,988) Certificate of participation payable (259,370,000) Net other post employee benefit obligation (16,692,543) Net pension liability (715,221,553) Deferred charge on refunding 95,247 Deferred outflows of resources and deferred inflows of resources are created as a result of various differences related to pensions that are not recognized in the governmental funds. Deferred outflows related to pensions 193,051,830 Deferred inflows related to pensions (95,004,791) Governmental funds do not report a liability for accrued interest on bonds and certificates of participation until due and payable. (8,971,099) Delinquent property taxes receivables will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. 3,012,000 Internal service funds are used by management to charge the cost of workers compensation and general liability insurance to individual funds, as well as severance benefits. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. Internal service fund net position is: (12,089,481) Total net position - governmental activities $ (368,672,876) See notes to financial statements. 23

26 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Year Ended June 30, 2016 General Food Service Revenues Local sources Property taxes $ 116,602,944 - Major Funds Community Service Capital Project- Building Construction Debt Service Total Governmental Funds $ $ 5,150,988 $ 82,169 $ 57,266,885 $ 179,102,986 Earnings on investments 454, ,247 1,679,643 2,540,323 Other 17,838,028 2,874,591 9,285,115 1,314,155-31,311,889 Revenue from state sources 410,256, ,305 12,125,120-11,267, ,427,393 Revenue from federal sources 40,075,526 18,833,351 2,009,358-1,548,773 62,467,008 Total revenues 585,227,545 22,486,250 28,570,581 1,802,571 71,762, ,849,599 Expenditures Current Administration 17,687, ,687,848 District support services 18,772, ,772,996 Elementary and secondary regular instruction 281,183, ,183,312 Vocational education instruction 3,824, ,824,712 Special education instruction 120,631, ,631,699 Instructional support services 53,888, ,888,807 Pupil support services 65,090, ,090,663 Sites and buildings 34,369, ,167,295-67,537,181 Fiscal and other fixed cost programs 585, ,971 Food service - 21,379, ,379,447 Community education and services ,096, ,096,351 Capital outlay Administration 37, ,580 District support services 4,145, ,145,742 Elementary and secondary regular instruction 1,359, ,359,413 Vocational education instruction 263, ,166 Special education instruction 368, ,050 Instructional support services 203, ,591 Pupil support services 2,993, ,993,458 Sites and buildings 977, ,094, ,072,000 Food service - 648, ,373 Community education and services , ,269 Debt service Principal ,651,000 65,651,000 Interest and fiscal charges ,474,693 22,474,693 Total expenditures 606,384,716 22,027,820 26,563, ,261,473 88,125, ,363,322 Excess of revenues over (under) expenditures (21,157,171) 458,430 2,006,961 (133,458,902) (16,363,041) (168,513,723) Other Financing Sources (Uses) Proceeds from sale of capital assets 8,310 24,636-8,009,968-8,042,914 Bond issuance 5,920, ,585,000 10,830, ,335,000 Bond premium ,827,492 1,735,499 7,562,991 Transfers in 16,000, ,000,000 Total other financing sources (uses) 21,928,310 24, ,422,460 12,565, ,940,905 Net change in fund balances 771, ,066 2,006,961 (25,036,442) (3,797,542) (25,572,818) Fund Balances Beginning of year 79,946,226 1,632,480 5,426, ,323,664 32,228, ,557,034 End of year $ 80,717,365 $ 2,115,546 $ 7,433,000 $ 141,287,222 $ 28,431,083 $ 259,984,216 See notes to financial statements. 24

27 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended June 30, 2016 Net change in fund balances - total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: $ (25,572,818) Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital Asset Additions 128,832,297 Net book value of disposed assets (6,364,191) Depreciation exepense (32,091,705) The governmental funds report bond proceeds as financing sources, while repayment of bond principal is reported as an expenditure. In the Statement of Net Position, however, issueing debt increases long-term liabilities and does not affect the Statement of Activities and repayment of principal reduces the liability. Also, governmental funds report the effect of issuance costs and premium when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Interest is recognized as an expenditure in the governmental funds when it is due. In the Statement of Activites, however, interest expense is recognized as it accrues, regardless of when it is due. The net effect of these differences in the treatment of general obligation bonds and related items is as follows: General obligation bond proceeds 14,235,000 Certificates of participation proceeds (125,570,000) Bond premium (7,562,991) Repayment of certificates of participation payable 21,370,000 Repayment of bond principal 44,281,000 Change in accrued interest expense 1,166,579 Amortization of bond premiums and discounts 4,727,369 Deferred charge on refunding 107,153 Amortization of deferred charge on refunding (11,906) Internal service funds are used by the district to charge the costs of employee health and dental benefits to individual funds. The net revenue (loss) of the internal service funds is reported with governmental activities (23,052,353) Net post employement benefit obligations are recognized as paid in the governmental funds but recognized as the expense is incurred in the Statement of Activities. (6,753,002) Governmental funds recognized pension contributions as expenditures at the time of payment whereas the Statement of Activities factors in items related to pensions on a full accrual perspective. Pension expense (15,510,148) Delinquent property taxes receivable will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. (309,142) Change in net position - governmental activities $ (28,078,858) See notes to financial statements. 25

28 Special School District No. 1 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund Year Ended June 30, 2016 Revenues Local sources Budgeted Amounts Actual Original Final Amounts Local property taxes $ 108,606,856 $ 108,606,856 $ 116,602,944 $ 7,996,088 Earnings on investments , ,430 Other local and county revenues 20,369,707 15,642,586 17,831,504 2,188,918 Revenue from state sources 401,474, ,775, ,256,617 8,480,712 Revenue from federal sources 40,360,839 40,360,839 40,075,526 (285,313) Sales and other conversion of assets - 6,000 6, Total revenues 570,812, ,392, ,227,545 18,835,359 Expenditures Current Administration 13,227,433 16,318,186 17,687,848 1,369,662 District support services 21,990,924 17,929,305 18,772, ,691 Elementary and secondary regular instruction 258,474, ,043, ,183,312 10,139,970 Vocational education instruction 3,948,044 3,207,264 3,824, ,448 Special education instruction 110,873, ,727, ,631,699 11,904,183 Instructional support services 48,243,178 51,304,518 53,888,807 2,584,289 Pupil support services 61,376,861 62,158,445 65,090,663 2,932,218 Sites and buildings 32,256,810 30,496,778 34,369,886 3,873,108 Fiscal and other fixed cost programs 552, , ,971 49,338 Capital outlay Administration 20,000 48,078 37,580 (10,498) District support services 3,888,500 8,079,135 4,145,742 (3,933,393) Elementary and secondary regular instruction 908,625 1,516,180 1,359,413 (156,767) Vocational education instruction 185, , ,166 (4,017) Special education instruction 100, , ,050 62,820 Instructional support services 70, , ,591 26,381 Pupil support services 583,001 1,843,665 2,993,458 1,149,793 Sites and buildings 641, , , ,410 Total expenditures 557,340, ,725, ,384,716 31,659,636 Excess of revenues over (under) expenditures 13,471,348 (8,332,894) (21,157,171) (12,824,277) Other Financing Sources Proceeds from sale of capital assets - - 8,310 8,310 Bond issuance - 4,420,000 5,920,000 1,500,000 Transfers in ,000,000 16,000,000 Total other financing sources - 4,420,000 21,928,310 17,508,310 Net change in fund balance $ 13,471,348 $ (3,912,894) 771,139 $ 4,684,033 Fund Balance Beginning of year 79,946,226 End of year $ 80,717,365 Variance with Final Budget - Over (Under) See notes to financial statements. 26